Housing Bubble Pop 2.0: Remodeling Collapses To 1 Year Low

On the way up, every sell-side strategist points to remodeling as a leading indicator for the housing recovery as confidence in the value of their home prompts real people to "invest" in upgrades and remodel their homes. That has been the story... until now. As NARI reports, the Remodeling Business Pulse (RBP) data of current and future remodeling business conditions show current condition ratings fell significantly in March - in fact they fell from multi-year highs to one-year lows as "homeowners remain slow to make the decision to move ahead with higher-priced projects." Of course, weather is blamed, and they are 'optimistic' about the future, but one look at the chart below and it is clear something changed...

A True Tale Of Intentional & Adverse Distortion of the Price of Construction Materials Thanks to Federal Reserve Monetary Policy

Speaking of price of construction materials (which impacts both renovation demand & new construction), the cost for just one square (10' by 10') of standard grade shingles (like IKO) is now about $90 to $100.

That doesn't include installation costs.

This same square was approx $70 to $75 in 2010 to early 2011ish.

That's just one example of building material costs rising 30% in the last 3 years, despite new construction being at 1960s levels (and off a peak of 2,200,000 units built in 2006 to 400,000 to 450,000ish today).

And shingles, whose main constituent production input cost is the price of a barrel of oil, are now 35% more expensive with oil @ 102/barrel than they were when oil was @ 140/barrel in 2007.

That's just shingles; Lumber, sheetrock, CONCRETE, brick, insulation, nail/fastener, OSB, window, etc. prices have all similarly risen, more or less, in that same time frame, despite there being a literal 25% of the new construction vs 2006.

Do you see how the Federal Reserve-Wall Street Commodity/Financialization-Industry Racketeering Visible Hand screws up price equilibrium, and sets us up for massively distorted economic disequilibrium that leads to the next CRASH.

That article is Bull Shit. Me thinks the key to it is Home Depot & Lowes. Here's just a sample:

Home Depot, which gained almost 3%, stands to gain the most from a resurgent housing market. The home-improvement retailer also got a positive nod from an industry analyst this morning, with the report pointing to solid results in areas that weren't affected by the cold winter weather earlier this year. In addition, with costs for materials looking somewhat favorable, Home Depot could be in a great position to capitalize on increased demand from shoppers as the company enters its key spring season.

Home improvement retailer Lowe’s released its Q4 earnings results on February 26. Earnings for the quarter stood at $306 million, a gain of nearly 6.3%. Net earnings were propelled by top-line growth as a result of the steady recovery in the U.S. housing market driving consumer appetite for home improvement products. The company’s net sales for the quarter stood at $11.66 billion, an increase of about 5.6% over Q4 2012.

Oh man, the gloom and doom! EVERYONE KNOWS people do not renovate their homes in the warm spring! They are out on the boat, or golfing, or otherwise enjoying this fine weather! Home renovationg is most popular in the winter when no one is outside. This number will pick up once the nice weather subsides, for sure.

I have to concur with your assessement. I'm an amature renovator and I've been looking to move to my next project. I've got a willing buyer for my current house at $25K over what I was asking (admittedly low), but I can't find a viable "next" project. All the projects are priced at finished project prices. In spite of this, they seem to be selling them. But I have to go by my instincts and hold fire until I see a project I deem worthwhile.

Just as an example, I was doing comps on a $175K, 2000 sq ft, 1 acre property. In Jan of this year, a very similar house a few doors down sold for $94K. I'm seeing that all over the Florida West Coast, houses selling for $70K to $90K and going right back on the market @ $150K to $200K. And those aren't repo sales numbers, those are houses that were on the market, bought by specs and jacked up with no renovations.

I much prefer, and operate much better, in a depressed, or at least less frothy, market. I've been priced out of our local market. I tend to sell a very nicely cleaned and renovated property at a decent price. My properties tend to stand out from the rest do to all the details being taken care of. This local market is all sizzle and no steak. That is not good when your technique is all steak and no sizzle.

Also, the realtor, shitbags as they normally are, have taken full advantage of the local conditions. The properties I've looked at lately, I've been told most offers are coming in over the ask and usually there are multiple offers. I can't operate in that environent. I just talked to a really snotty bitch yesterday. I went to her company web site to see if they had additional photos of a property I was contenplating. They had about 35 to 40 listings. Fully 40% of them were pending. Two months ago, when I first put my property on the market, I had a list of 15 or so potential properties. As the action was fast and furious on my property I decided I'd better step up and buy my next place now. In the few weeks I took my eye off the market getting mine marketed, 13 of the 15 potential properties went under contract. Anything new replacing that inventory is priced 30% or more than what I was looking at.

On the bright side, I never buy a property I wouldn't want to stay long term in, and when I do renovations, it's with the mindset that I'll be here until the day I die. So my current digs are not a bad hangout until this blows over, if it does.

I think you just need to hang in a little longer. I was on Trulia last night (Fort Myers) and I pulled up about 60 pages of properties in my parameter. After I got to page 17, they all become Lis Pendens, Foreclosure, etc. Modest homes in Cape Coral and Fort Myers got vacuumed up by the buy-to-rent hedgies over the last year but that's done. I think another major decline is "coming soon" to a theater near me. I'm in "wait a bit longer mode"

I just count the cars in the HD parking lot on Saturday afternoon. During '07, I would have to drive around for a few minutes to find a spot, or even go to the Staples area across the parking lot. I've seen it at maybe 35% capacity a few years ago. Not sure where it is now.

Was just a Lowes last weekend, late morning. Parking lot was like 5% full. Has been that way for awhile. On the other side of town, maybe 25% to 30% during the week... much of it likely contractors as opposed to home owners.

A neighbor of mine made the mistake of asking my if was remodeling my house at all.

I told him I wasn't putting a nickle into it beyond what is needed to just maintain it in good condition. That I haven't a clue where the market is going, where I might be going, etc. except that the economy/financial systems as we know them are going to implode at some point sooner rather than later.

If it wasn't for concentrating on the 0.1%, as I have
since 2008, I would not be eating from my biz income.
Much as I hate having all my eggs in one basket, chickens
everywhere else are just not laying.
Obozocare and bigger taxes took out the steam in any spending by the little people around Christmas time.
Just waiting on the RE crash now.

Housing bubbles will continue for a long time to come. This one will eventually pop and then rinse and repeat. The "American Dream" and "owning a home" are so tightly correlated in the minds of the american sheeple that they will forever poor most of their net worth into housing. Not everyone should own a home. Period. It is just another asset class, the same as equities, bonds, FX, it is a bet on the future in some way. What decent investor in their right mind would ever fucking poor nearly all of their funds into one investment. It is stuuupppiiiddd.

flippers are the only ones who remodel. i looked at a bunch of crappy houses a few years ago. many people around here spend NOTHING on maintenance. Not even a five gallon bucket of paint in twenty years.

People are essentially renting houses from banks, these days. That began, in my mind, in 1997. That's when the FHA(maybe others, too) lowered their standards. It became almost impossible to find good renters after that happened. I was directly competing with banks for renters. Renters ain't gonna do nuthin' to maintain a place.

Vis a vis "it's clear something happened", I was at the credit union the recent week of the "big" stock correction (4% of value I think, nothing great), and all the little offices, which are usually always empty, ALL had people excitedly meeting with bank reps.

Not sure about what, but I'm guessing anyone who is fueling a richer lifestyle based on their (imaginary) stock wealth is also keenly afraid of a sudden and sharp decline in said "wealth".

Why, maybe afraid enough not to spend any of it on rennovation projects, or anything else for that matter.

Even if the powers that be don't let the stock market go down, inflation will reduce the perceived value of the market holdings over time. One way or another, the wealth that some people believe they have is going to go down, a lot, before it goes back up again.

I guess the powers that be will choose slower rather than faster.

And related to the retail closings article ZH posted, I can't believe all the closing stores around here this year! Really stark. That's another thing people aren't spending money on, opening new shops or shopping at established ones. Only the restaurants that really have good food for a fair price consistently stay full, so many others are closing down for good.